Navigating the Risks of Foreign Exchange Trading
High Risk Warning
Foreign exchange trading indeed carries a high level of risk that may not be suitable for all investors. The use of leverage amplifies this risk, exposing traders to potential losses that could exceed their initial investment. Before venturing into foreign exchange trading, it is crucial to carefully assess one's investment objectives, experience level, and risk tolerance. One could lose a significant portion or even all of their initial investment. Therefore, it is advisable to only invest money that one can afford to lose. Educating oneself about the risks associated with foreign exchange trading is of utmost importance. Seeking advice from an independent financial or tax advisor can provide valuable insights and help in making informed decisions.Advisory Warning
FOREXLIVE is not an investment advisor; rather, it provides references and links to selected news, blogs, and other sources of economic and market information. This is done for informational purposes and as an educational service to its clients and prospects. It does not endorse the opinions or recommendations of these blogs or other information sources. Clients and prospects are advised to carefully consider the opinions and analysis offered in these sources in the context of their individual analysis and decision-making. It is important to note that none of these blogs or other sources of information constitutes a track record. Past performance is no guarantee of future results, and FOREXLIVE specifically emphasizes the need for clients and prospects to carefully review all claims and representations made by advisors, bloggers, money managers, and system vendors before investing any funds or opening an account with any Forex dealer. Any news, opinions, research, data, or other information contained within this website is provided on an "as-is" basis as a general market commentary and does not constitute investment or trading advice.Disclaimer
FOREXLIVE may receive compensation from the advertisers that appear on the website based on user interactions with the advertisements or advertisers. This is an important aspect to be aware of as it may have implications for the objectivity and independence of the information provided. It is crucial for investors to understand these potential conflicts and make decisions based on a comprehensive understanding of the overall situation.Uniting Students for a Brighter School District Future
Elementary and Middle School Students' Leadership Journey
Throughout the day, students from across the district engaged in meaningful discussions and activities. Elementary and middle school students, with the guidance of high school mentors, brainstormed about the legacy they wanted to leave behind. They realized the importance of going beyond their comfort zones and setting good examples for those who would follow. For instance, Rose Whitaker, a sixth-grade student at Rich Pond Elementary, emphasized the qualities of responsibility and sacrifice in a leader. She understood that being self-centered would lead to a disastrous leadership style.High School Students' Mentorship and Advice
High school students played a crucial role in the summit by offering their wisdom and advice to younger students. Brooks Vincent, a junior at Warren East High School, shared valuable insights on being a leader. He encouraged students not to be afraid to step out of their comfort zones as they were the leaders of the school and would be followed. This mentorship helped younger students gain confidence and perspective.Collaborative Goal Setting for School Improvement
By working together, the students created new goals to enhance their schools. They aimed to support their staff, incorporate good habits into daily learning, and foster responsibility among students. These goals were not only specific but also showed their commitment to making a lasting impact. For example, they discussed how to create a more collaborative and inclusive learning environment.Together, these students are working towards building a brighter future across the entire school district. Their efforts demonstrate the power of collective action and leadership in driving positive change.Copyright 2024 WBKO. All rights reserved.Unraveling the Tax Tangle of Foreign Currency Gains and Losses
Personal Finance and Taxes
During my trip, I used my U.S. dollar VISA credit card for most expenses and paid with U.S. dollars from my chequing account. However, odd expenses like tapping my phone for the New York subway system (US$2.90) were charged on a Canadian card, and I had to deal with the applicable foreign exchange rate. This experience highlighted the importance of understanding how foreign currency transactions affect our taxes.
In November 2024, the foreign exchange rate I was charged was over $1.40 to buy U.S. dollars, a significant increase from the beginning of 2024 when it was closer to $1.32. The Canada Revenue Agency (CRA) recently released a technical interpretation letter that provides valuable guidance on how foreign currency gains and losses should be treated for Canadian tax purposes.
How Foreign Currency Gains and Losses are Treated
The CRA was asked how gains or losses on various foreign currency accounts and investments are to be treated. They responded that if an individual makes a gain or suffers a loss from the “disposition” of a foreign currency, it is considered a capital gain or loss and is taxable or allowable. For example, a disposition occurs when you spend, convert, or use foreign currency to purchase a negotiable instrument.
Term deposits, guaranteed investment certificates, and other similar non-negotiable deposits are considered funds on deposit and do not trigger a disposition. However, transactions involving foreign currency funds invested in negotiable instruments require a foreign exchange gain or loss calculation at the time of purchase and at maturity or disposal.
Reporting Foreign Currency Gains and Losses
Under the Income Tax Act, you only have to report a foreign currency net gain or loss if it exceeds $200. In 2020, the CRA clarified that foreign currency held in a chequing or current deposit account is eligible for this treatment. The recent CRA technical interpretation also confirmed that when disposing of foreign currency-denominated securities or real estate, the capital gain or loss includes a foreign currency component.
For example, Jed bought 1,000 shares of a U.S. stock in 2012 when the U.S. dollar was at par with the Canadian dollar. By 2024, the share price had fallen, and Jed decided to do tax loss harvesting. When he sold the shares in 2024 at a different exchange rate, what initially appeared to be a capital loss turned out to be a gain for Canadian tax purposes. The CRA will require Jed to report his foreign exchange gain on his 2024 tax return.
Foreign Income and Tax Credits
Foreign income, such as U.S. dividends, may be treated differently. While the CRA recommends using the Bank of Canada exchange rate on the day of receipt, if the income is paid evenly throughout the year, you can use the average annual rate. Any foreign taxes withheld on non-registered foreign income may entitle you to a foreign tax credit when calculating your federal and provincial taxes.
Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, the managing director of Tax & Estate Planning at CIBC Private Wealth in Toronto, emphasizes the importance of understanding these tax rules. If you liked this story, sign up for more in the FP Investor newsletter and bookmark our website for business news.